May 31, 2014 is a key date for all public companies listed with the SEC, as the first Conflict Minerals Report has to be filed by this day. The Conflict Minerals Rule enacted by the SEC,as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires certain public companies to provide disclosures on the use of conflict minerals in their products and whether they originated at mines run by warlords in the Democratic Republic of the Congo (DRC) or its nine adjoining neighbors.
Compliance is mandatory for all SEC “issuers”, including foreign issuers, that manufacture or contract to manufacture products where “conflict minerals are necessary to the functionality or production” of the product. The rule was enacted as part of an effort to curtail human rights abuses in Africa by regulation of US public companies and also to provide transparency into corporate practices.
The SEC rule does not specifically ban use of materials from such mines, but it requires companies to track and report the origin of the minerals through their supply chain.
The aim is to dissuade companies from using minerals sourced at mines where human rights abuses take place and not engaging in trade that facilitates regional conflict.
The SEC disclosure process involves the following steps
Minerals that are not conflict free must be listed in the Conflict Minerals Report, which must be audited by an independent auditor. Additional documentation is also required for any materials that come from the affected countries to show that it meets the Organisation for Economic Co-operation and Development (OECD) due-diligence procedures documenting and the materials are conflict free. The first Forms under the rule will be required for the calendar year ending December 31, 2013 and will need to be filed by 31 May 2014.
For most companies compliance with the Conflict Minerals Rule will not be easy and will be time consuming with the SEC estimating that initial compliance costs could be between $3 billion to $4 billion,as the complete supply chain needs to be analyzed for source of minerals, particularly those contained in procured parts, assemblies or items purchased from vendors. The fact that the supply base is not geared to address these requirements and the information provided by them is not always accurate only adds to the challenge. Hence, it requires multidisciplinary teams working across product lines and tracing multiple supply chains for these materials and their origin.
On one hand, committing to using only conflict-free materials can mean paying higher costs for those materials but on the other hand a company’s reputation and goodwill is at risk if its products include conflict minerals. Despite the challenges and oppositions raised against various sections of the rule in court, experts believe that ultimately compliance will be mandatory and in fact will be extended to include more industries currently exempt from the rule. Therefore, a company that is committed to a conflict-free business plan can leverage its status towards strategic competitive advantage and be seen as a good corporate citizen.
Enventure is an industry leader in the compliance space and is one of the first companies to offer engineering services that will help you comply with this regulation.